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Peugeot, French government resolve supplier bailout dispute

PARIS, July 19 (Reuters) - PSA Group said on Wednesday it had reached agreement with the French government over the carmaker's contribution to a rescue plan for struggling supplier GM&S, defusing their public stand-off ahead of a key bankruptcy hearing.

The government also confirmed it had dropped its demands that the maker of Peugeot, Citroen and DS cars contribute a 5 million euro ($5.8 million) "modernisation" grant to the metal parts supplier on top of a 50 million euro purchasing pledge.

The threat to GM&S and its 277 jobs is in the political spotlight as a first industrial policy test for new President Emmanuel Macron's government.

A court hearing that had been due on Wednesday to rule on the takeover bid by larger supplier GMD, with backing from PSA, Renault and the government, was postponed to July 24. GMD plans to restructure the site and keep "at least 120" jobs.

PSA had resisted the grant demand and on Tuesday circulated a letter in which GMD boss Alain Martineau assured the carmaker's Chief Executive Carlos Tavares that his existing offer was enough to safeguard GM&S operations.

The stand-off was resolved after PSA agreed to extend its purchasing commitment to five years averaging 10 million euros annually from three years at 12 million euros, a spokesman for the carmaker said on Wednesday.

The figures clarified earlier comments in which the carmaker had referred to a higher purchasing commitment totalling 60 million euros.

Government officials played down the retreat. "They have come up with more cash," said a finance ministry source. "It's not important to us whether it's financed by orders or not."

A spokesman for Renault, which had separately agreed to inject a 5 million euro grant in addition to its own purchasing commitment, said the company had no immediate comment. ($1 = 0.8681 euros) (Reporting by Laurence Frost and Caroline Pailliez; Editing by Andrew Callus)